BILL ANALYSIS Ó
AB 1371
Page 1
Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 1371
Lackey - As Amended April 20, 2015
Majority vote. Tax levy.
SUBJECT: Personal income taxes: deduction: education
expenses.
SUMMARY: Allows an "above-the-line" deduction for the cost of
education-related expenses of a taxpayer's dependent child
attending public or private school, not to exceed $2,500.
Specifically, this bill:
1)Allows an "above-the-line" deduction, beginning on or after
January 1, 2016, and before January 1, 2021, for an amount
equal to the qualified amount that was paid or incurred for
qualified education-related expenses for one or more dependent
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children by a qualified taxpayer during the taxable year.
2)Defines "dependent children" as one or more children that meet
all of the following:
a) Attended Kindergarten or any Grades 1 through 12 in
California at a public, charter, or private school that has
a current private school affidavit on file with the State
Department of Education in the taxable year;
b) Are deemed to be a full-time pupil in accordance with
the compulsory education requirements of Education Code
Section 48200 and 48222;
c) Are under the age of 21 at the end of the school year;
d) Meet the requirements of Internal Revenue Code (IRC)
Section 152(c)(1)(D) and (E); and,
e) Are claimed as dependent children on an original, timely
filed return of the qualifying taxpayer.
3)Defines "qualified amount" as the amount paid or incurred for
qualified education-related expenses, not to exceed $2,500.
4)Defines "qualified education-related expenses" as the
following costs, incurred for Kindergarten or for any Grades 1
through 12:
a) Textbooks;
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b) School supplies, which include, but are not limited to,
pens, paper, pencils, calculators, and rulers;
c) Rental or purchase of educational equipment required for
classes during the regular school day;
d) School uniforms that are not part of a co-curricular
activity;
e) Computers, computer hardware, and educational computer
software used to learn academic subjects;
f) Fees for college courses at public institutions or
independent nonprofit colleges, or for summer school
courses that satisfy high school graduation requirements;
g) Psycho-educational diagnostic evaluations to assess the
cognitive and academic abilities of dependent children;
h) Special education and related services for dependent
children who have an individualized education program or
its equivalent;
i) Out-of-school enrichment programs, tutoring, and summer
programs that are academic in nature; and,
j) Public transportation or third-party transportation
expenses for traveling directly to and from school.
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5)Provides that "qualified education-related expenses" shall not
include any expenses for the items listed under the definition
of "qualified education-related expenses" that are used in a
trade or business.
6)Defines a "qualified taxpayer" as a parent or legal guardian
of one or more depended children who meet all of the following
requirements:
a) Both dependent children and the parent or guardian
reside in California when the qualified education-related
expenses are paid or incurred; and,
b) The household income does not exceed 250% of the federal
Income Eligibility Guidelines published by the Food and
Nutrition Service of the United States Department of
Agriculture for use in determining eligibility for reduced
price meals. "Household income" means adjusted gross
income as defined by IRC Section 62.
7)Provides that the deduction may not exceed $2,500 in a taxable
year. If more than one qualified taxpayer may be allowed this
deduction for dependent children, including a qualified
taxpayer filing a joint return, the sum of all deductions
allowed under this section for those dependent children shall
not exceed $2,500 in a taxable year.
8)Provides that the Franchise Tax Board (FTB) may prescribe
rules, guidelines, or procedures necessary or appropriate to
carry out the purpose of this bill.
9)Provides that the Administrative Procedure Act (Government
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Code Section 11340 et seq.) shall not apply to any standard,
criterion, procedure, determination, rule, notice, or
guideline established or issued by the FTB under this bill.
10)Provides that the provisions of this bill shall remain in
effect until December 1, 2021, and as of that date is
repealed.
11)Provides that it is the intent of the Legislature to make the
findings required by Revenue and Taxation Code (R&TC) Section
41.
12)Makes findings and declarations.
13)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Allows individuals to deduct certain expenses, such as medical
expenses, charitable contributions, interest, and taxes as
itemized deductions. Other expenses from the production of
income and certain employee business expenses are considered
miscellaneous itemized deductions.
2)Allows for an "above-the-line" deduction for certain expenses
when calculating adjusted gross income. These expenses
include expenses and interest on education loans, certain
ordinary and necessary trade and business expenses, losses
from the sale or exchange of certain property, contributions
for pension, profit-sharing and annuity plans of self-employed
individuals, retirement savings, and alimony. Thus, all
taxpayers with these types of expenses receive the benefit of
the deduction, regardless of whether the taxpayer itemizes
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deductions or uses the standard deduction.
3)Requires any bill authorizing a new PIT credit to contain all
of the following:
a) Specific goals, purposes, and objectives that the tax
credit will achieve;
b) Detailed performance indicators for the Legislature to
use when measuring whether the tax credit meets the goals,
purposes, and objectives stated in the bill; and,
c) Data collection requirements to enable the Legislature
to determine whether the tax credit is meeting, failing to
meet, or exceeding those specific goals, purposes, and
objectives. The requirements shall include the specific
data and baseline measurements to be collected and remitted
in each year the credit is in effect, for the Legislature
to measure the change in performance indicators, and the
specific taxpayers, state agencies, or other entities
required to collect and remit data. (R&TC Section 41.)
FISCAL EFFECT: The FTB estimates that this bill will reduce
General Fund revenue by $21 million in fiscal year (FY) 2016-17,
$22 million in FY 2017-18, and $22 million in FY 2018-19.
COMMENTS:
1)Author's Statemen t. The author has provided the following
statement in support of this bill:
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The education tax relief provided under AB 1371 would
empower and engage parents to personally care for their own
school children's K-12 learning needs - which they know
most intimately. AB 1371 would benefit California's school
children, but it giving vital support to low-income,
working- and middle-class families. Such tax relief for
citizens who shoulder an extra weight in pursuit of our
common good has long been considered sound public policy.
In 1983, the U.S. Supreme Court ruled that such education
tax relief programs are constitutional.
AB 1371 would allow families with incomes of 250 percent
above the Reduced Price Lunch Program guidelines or less to
take a $2,500 above-the-line deduction from their gross
income for K-12 educational expenses. For example, a
family of four that brings in $110,000 per year or less
would be eligible for this deduction. Educational expenses
would include tutoring, computer hardware and educational
software, diagnostic evaluations, special education
services, academic after-school programs, textbooks and
school supplies, uniforms, and transportation.
2)Arguments in Opposition : the American Federation of State,
County and Municipal Employees states that "[e]ducation is one
of AFSCME's paramount concerns. With that being said, AFSCME
opposes AB 1371 because though it is a noble attempt to aid
low-income families, it falls dramatically short of truly
fulfilling its purpose."
3)Proposition 30 . In general, Proposition 30 increased the
marginal tax rate for those making above $250,000 and
increased the statewide sales tax rate from 7.25% to 7.5%.
Proposition 30 was estimated to increase General Fund revenue
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by about $6 billion per year, which would primarily be used to
restore funding to California's public school system. The
provisions of this bill are meant to counteract the lack of
funding once available to K-12 education. Specifically, this
bill seeks to remedy the fact that many schools are unable to
provide school supplies and books. However, as noted in the
Governor's Budget Summary, the budget for FY 2014-15 provides
$61.6 billion in Proposition 98 funding, an increase of $6.3
billion over the 2013 budget act level. It appears that new
revenues, provided in part because of the passage of
Proposition 30, have translated into additional funding for K
through 12.
4)Is This Bill Needed ? The California Supreme Court ruled in
Hartzell v. Connell (1984) 35 Cal.3d 899, 201) that pupil fees
violate the constitutional right to a free education.
Specifically, the court ruled that extracurricular activities
also must be free because they are an integral component of
public education and a part of the educational program. In
September 2010, the American Civil Liberties Union (ACLU)
filed a class action lawsuit alleging the unconstitutional
assessment of pupil fees by school districts [Jane Doe, et al.
v. State of California, et al., (Super. Ct. Los Angeles
County, 2010, BC445151)]. The lawsuit was brought forward
because ACLU reports showed that more than 50 public school
districts required pupils to pay fees for textbooks,
workbooks, science labs, physical education uniforms,
classroom materials, and extracurricular activities. Instead
of moving forward with the lawsuit, the ACLU and interested
parties sought a legislative solution. As a result, AB 1575
(Lara), Chapter 776, Statutes of 2012, which was sponsored by
ACLU, codified the long held constitutional prohibition on the
imposition of pupil fees and established procedures to ensure
compliance with the prohibition.
Since the passage of AB 1575, many schools have stopped
imposing fees for participation and, in some cases, are paying
for items that were traditionally paid for by pupils and
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parents. Most recently, school districts have informed
parents that caps and gowns will be provided free of charge.
Within the last year, parents throughout California have been
utilizing compliance procedures to challenge school districts
that require families to pay for Advanced Placement exams,
classrooms supplies, workbooks, and school uniforms. (Loretta
Kalb, California to Schools: Student don't have to pay for
graduation attire, other items 'integral' to education,
Sacramento Bee, May 7, 2014.) In some cases, parents and
activists are even challenging "supply lists" posted by school
for returning student. One parent, in the San Juan School
District, received a letter outlining a list of supplies that
children would need at the beginning of the year. The list
included items such as tissue paper, binders, pencils and
pens. The supplies cost parents between $70 and $100. In
response to the challenge to required supplies, the school
notified parents that all necessary materials will be provided
to school children and that "supply lists" are suggestions,
not required for full participation. Schools across
California have begun making similar changes to "required"
items and fees that are imposed on pupils. In most cases,
schools have stated that items will be provided free of
charge.
5)Private School Subsidy . The "above-the-line" deduction for
education-related expenses applies to both private and public
schools. Education-related expenses include computers,
computer hardware, out-of-school enrichment programs, and
third-party transportation to expenses for traveling directly
to and from school. The Committee may wish consider whether
subsidizing private educational courses and private
transportation is an appropriate use of public funds.
6)Performance Measurement Standards : Existing law requires any
bill, introduced on or after January 1, 2015, that would
authorize a new credit under either the PIT Law or the CT Law
to provide performance measurement standards. According to
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legislative findings and declarations, tax preferences
represent a major exercise of government power, but face less
oversight than the spending side of the budget. As a way of
ensuring transparency and accountability when investing public
dollars through tax credit programs, the Legislature decided
to apply performance measurement standards as a way of
reviewing tax credits with the same level of scrutiny as
spending programs. This bill states that legislative intent
to make the findings required by RT&C Section 41. However,
this bill provides an above-the-line deduction, not a tax
credit. Therefore, the performance measurement requirements
established under R&TC Section 41 do not apply.
7)The Administrative Procedure Act : This bill provides that the
Administrative Procedure Act shall not apply to any rule,
notice, or guideline established by the FTB pursuant to this
bill. It is not clear to Committee staff why an exemption
from the Administrative Procedure Act is necessary in this
instance.
8)Previous Legislation : AB 1786 (Olsen), of the 2013-14
Legislative Session, would have allowed an "above-the-line"
deduction for the cost of education-related expenses of the
taxpayer's dependent child attending public or private school,
not to exceed $2,500. AB 1786 was held on this Committee's
Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
AB 1371
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Opposition
American Federation of State, County and Municipal Employees
California Tax Reform Association
Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)
319-2098